Should I register for VAT?

Business registering for VAT
Table of Contents
    Add a header to begin generating the table of contents

    If you own a growing small business, you may be wondering whether to register for VAT and what the benefits of doing so are.

    As a small business owner, you must register for VAT if your turnover exceeds the VAT registration threshold of £90,000 or will do so in the next 30 days. If your turnover is below the threshold, voluntary registration can be beneficial to reclaim VAT on purchases and enhance business credibility.

    If you’re still scratching your head about the rules of VAT registration or in a quandary about registering for VAT voluntarily, read on for Jameco’s helpful guide. We’ll explore who needs to register for VAT, plus the benefits and drawbacks of voluntary VAT registration.

    For personalised advice on VAT registration or help with your VAT return, please don’t hesitate to get in touch with our expert small business accountants.

    What businesses need to register for VAT?

    VAT is a tax on most goods and services and applies to every type of business in the UK, from sole traders to larger companies. VAT-registered businesses add VAT to sales prices, collect it from customers, and pay it to the government. They can also reclaim VAT paid on business expenses, helping to reduce their overall costs.

    The system ensures that the final consumer bears the cost of the VAT, while businesses act as intermediaries collecting and reclaiming VAT along the supply chain.

    Understanding VAT is crucial for small business owners, whether you are a sole trader, limited company, or partnership, to ensure compliance with tax laws, keep cash flowing, and avoid penalties.

    How do you pay and charge VAT?

    VAT-registered companies must charge customers VAT on their services and products (‘output tax’). That means raising VAT invoices that include your business details, customer details, a unique invoice number, date, description of goods or services, total amount, and VAT amount.

    VAT-registered businesses pay VAT on goods and services they purchase for their business (known as ‘input tax’) and can claim VAT back on those purchases.

    Let’s take a look at what that could mean in specific industries:

    Trades – A carpenter charges VAT on the cost of building a cabinet for a client (output tax) and can reclaim the VAT paid on the materials purchased for the job (input tax).

    IT companies – An IT firm charges VAT on the cost of developing a software application for a client (output tax) and can reclaim the VAT paid on computer hardware and development tools (input tax).

    Consultants – A business consultant charges VAT on the cost of providing strategic advice to a client (output tax) and can reclaim the VAT paid on office supplies and professional development courses (input tax).

    Marketing agencies – A marketing agency charges VAT on the cost of a social media ad campaign for a client (output tax) and can reclaim the VAT paid on software subscriptions (input tax).

    Is VAT registration prompted?

    HMRC does not prompt VAT registration; it is the responsibility of the business to register for VAT once its taxable sales exceed the VAT threshold of £90,000 or are expected to in the next 30 days.

    Monitoring your turnover regularly is important to avoid missing the registration deadline and incurring penalties and interest charges from HMRC. This is where the advice of an accountant can be invaluable.

    What VAT scheme should I choose?

    There are several UK VAT schemes:

    VAT SchemeBusiness Suitability
    Standard VAT SchemeSuitable for most businesses, it involves regular VAT returns
    Flat Rate schemeSimplifies VAT calculations, ideal for small businesses with low VATable expenses
    Cash Accounting SchemePay VAT on sales when you receive payment, this is helpful for businesses with cash flow issues
    Annual Accounting SchemeFile one annual VAT return instead of a quarterly one, which is beneficial for steady-income businesses

    An accountant can help you choose the best scheme for your business, depending on its size, financial situation, and cash flow needs.

    What’s the difference between zero-rated and exempt VAT?

    Zero-rated VAT goods, such as children’s clothes, are ‘taxable’ at 0%. This allows the seller to reclaim the input tax relating to the item, such as inventory and packaging. VAT-exempt products and services, such as some financial services, are not taxable, so businesses cannot reclaim input VAT.

    Is it worth becoming voluntarily VAT registered?

    Even if your total VAT taxable turnover is below the threshold, you might consider voluntary VAT registration for several reasons:

    Benefits of being VAT registered

    • Reclaim VAT: Whether you are registered or not, you are already paying VAT on most of your business expenses. As a VAT-registered company, you can reclaim the tax on purchases and expenses, significantly reducing your costs.
    • Professionalism: Being VAT registered can enhance your business reputation and make you more credible to clients.
    • Compliance: Registering for VAT ensures compliance with UK tax laws, avoiding potential penalties and fines.

    Drawbacks of being VAT registered

    • Administrative burden: Managing quarterly VAT returns and record-keeping can be time-consuming and complex, although it is easier with the help of a VAT accountant.
    • Increased costs for non-VAT registered customers: If your clients are not VAT registered, they cannot reclaim VAT on your invoices. That means your prices may become less competitive.

    How easy is it to get VAT registered?

    Registering for VAT is relatively straightforward. You can register for VAT online through the HMRC website. Once registered, you will receive a VAT registration number and a VAT registration certificate. From there on, you must issue VAT invoices, keep VAT records and submit VAT returns online to HMRC on a quarterly basis.

    What happens if I haven’t registered for VAT?

    If you don’t register for VAT when your turnover exceeds the threshold, HMRC can impose significant penalties and fines. You will also be required to pay the VAT you owe from the date you should have registered, plus interest. Continued failure to comply can lead to further legal action, not to mention the damage it can do to your business’s reputation.

    Need VAT advice? Get in touch with Jameco Group today

    At Jameco Group, we understand that VAT registration can be daunting, especially for small businesses. Our team of experienced VAT accountants can guide you through the registration process, help you set up systems for recording VAT sales and purchases, manage your VAT returns, and ensure compliance with HMRC regulations.

    Whether you’re considering voluntary VAT registration or need assistance with VAT returns, we’re here to help. Get in touch to arrange a friendly chat to learn more about our services.

    For more VAT reading, visit our blogs:

    James Wheeler, founder and managing directors of Jameco Group
    James Wheeler

    James has over 10 years of experience in accountancy and taxation. He has a real passion for business and truly believes SMEs are the heart of the UK economy. In 2017, he founded Jameco Group to provide first-class accountancy, taxation, and business advisory services to individuals and SMEs across the UK.

    Request a Callback

    Fill out the form below and one of our team members will call you back about your query…

    Related Posts

    Let's Work Together!

    Whether you’re requesting a quote or you just have some questions, feel free to get in contact with a member of our team. Please complete our website contact form for a message or call back. We aim to respond quickly.